The new International Fraud & Asset Tracing 2021 guide covers 17 jurisdictions. The guide provides the latest legal information on fraud claims, disclosure of assets, shareholders’ claims against fraudulent directors, overseas parties in fraud claims, rules for claiming punitive or exemplary damages and laws to protect banking secrecy.
Last Updated: April 30, 2021
International Fraud & Asset Tracing
The new International Fraud & Asset Tracing guide covers 17 jurisdictions. The guide provides the latest legal information in relation to civil law fraud, causes of action, evidence gathering, worldwide freezing injunctions, third party disclosure, damages principles and enforcement.
Whether it is a consequence of large commercial groups organising themselves via complex multi-jurisdictional structures for tax and regulatory reasons; or the masterminds behind frauds, Ponzi schemes, and other scams deliberately exploiting opaque or non-transparent means of ownership or control, it remains vitally important for lawyers specialising in fraud around the world to have access to the key legal issues in as many jurisdictions as possible. I sincerely hope that this book will be an invaluable resource in that regard.
In the recent past there have been numerous significant reminders of why fraud litigation remains “repeat business” for lawyers who have the experience and the ability to act swiftly and decisively to outmanoeuvre dishonest wrongdoers, regardless of how well they have sought to conceal their tracks.
Fraudsters and culpable third parties
The professional fraudster is a predator who pre-determines that they are going to conspire, deceive or steal. The key for the victim is always to seek to recover what has been lost. The fraudulent act may be a deliberately false promise, or an email or other communication sent by an impersonator of an account holder to deceive a bank or fiduciary to transfer funds away.
Opportunistic fraudsters find themselves tempted to commit fraud either because they cannot resist the temptation presented to them, or because circumstances arise which mean that the commission of the fraud is seen as a solution to a problem – stealing funds to plug a loss-making situation, in the hope of recovering the loss at a future point in time.
Then there are the people in the shadows who allow themselves to be caught up in the fraudster’s wrongdoing. Depending on the degree of culpability of such third parties, at best they may come under an obligation to provide information to the victim to assist in identifying the wrongdoer and pursuing legal redress against them, or the third party may be shown to have gone so far in their facilitation as to have incurred their own liability to the victim.
The wide reach of fraud
In many cases it is not sufficient for the fraud lawyer to be familiar with the local law and get on and apply that to their particular case. Even if the fact pattern surrounding the perpetration of the fraud may be localised, the consequences of the fraud, and the subsequent concealment of the financial gain will invariably cross borders and each touchpoint – the setting up of SPVs, trust structures, bank accounts, and so on – will provide opportunities for investigation and evidence gathering and require analysis to determine what steps should be taken, and where, and which of the many potential systems of law involved should be applied.
There is no universal law relating to fraud. Legal developments in this area of jurisprudence are often a product of judge-made case law which develops in response to market forces – fraudsters find ever-more inventive and devious means of operating, and their victims look for different forms of redress, and assistance from the courts. It can be a source of frustration and expense for the victim of fraud to seek legal redress in multiple jurisdictions in an effort to trace the proceeds of fraud or obtain information to that end. One particularly hot topic is the extent to which the courts of one country can legitimately make interim orders which purport to have an extraterritorial effect on defendants who are based in another country.
The English courts have a series of procedural provisions which determine when the court is entitled to exercise its jurisdiction over a foreign defendant.
These “gateways” as they are known, generally apply to circumstances in which the claimant wishes to pursue a substantive claim against the defendant. Where the court is being invited to make an interim order such as for disclosure of information on Norwich Pharmacal principles, there is no established basis upon which the English courts can order such disclosure from a foreign defendant which is not a party to any substantive claim.
A gap in the armoury of the fraud lawyer
I have maintained for some time that this is a gap in the armoury of the fraud lawyer which can and should be filled by the English courts in appropriate cases and, in particular, in cases of large international fraud. In recent years, a trend has developed which enables substantive proceedings to be brought in England against “unknown” defendants with a view to joining foreign-based banks and other respondents holding important information as “necessary or proper” parties to the substantive claims and requiring them to give disclosure under Norwich Pharmacal Principles (potentially to reveal the identity of some or all of the substantive defendants). This way of seeking an order against a foreign defendant from which (only) disclosure of information was sought was originally rejected by the court in AB Bank Ltd v Abu Dhabi Commercial Bank PJSC  EWHC 2082 (Comm) on the basis that the disclosure application would be determined first, and the two claims would never be heard together. Therefore, the Norwich Pharmacal respondent was not seen as a necessary or proper party to the substantive fraud claim.
However, in Bushell and Milner-Moore, Disclosure of Information: Norwich Pharmacal and Related Principles (2013) p228 it has been suggested that CPR 7.3 could be relied on to justify the two claims being brought together in the same claim form where those claims “can be conveniently disposed of in the same proceedings”. This contention was supported by the explanatory notes to CPR 7.3, highlighting the recent trend towards liberalising the rules restraining joinder and encouraging the joinder in the same proceedings of all claims and interested parties, including making provision for separate trials if needed. This solution was more fully developed in “Should Norwich Pharmacal have extra-territorial reach?” L.Q.R 2017, 133 (Apr) 188–191, and in the Second Edition (2018) of Disclosure of Information.
In ION Science Ltd v Persons Unknown (Unreported), 21 December 2020 (Commercial Court), Mr Justice Butcher was persuaded there was a good, arguable case in favour of the necessary or proper party gateway applying to a foreign respondent to a Bankers Trust disclosure order (a derivative of Norwich Pharmacal). The learned judge said this: “The question, therefore, is whether a claim for a Banker Trust order could be brought in the same proceedings as the anchor claim. That depends on CPR 7.3 which permits the commencement of more than one claim in a claim form if they can be conveniently disposed of in the same proceedings. Here a claim for disclosure pursuant to a Bankers Trust order could be conveniently disposed of in the same proceedings, and indeed it would be just and convenient in many cases, of which this would be one, for that to be the case to facilitate the identification of the persons unknown.”
While the decision in ION Science was one at which the respondents were not represented, and should therefore be treated with some caution, this does appear to be something of a landmark moment and another instance of judicial creativity in order to give Norwich Pharmacal (and Bankers Trust) the reach it sometimes needs to assist the victims of fraud. This reshaping of the jurisdictional landscape is a welcome response to the various ways ownership and other information can be stored overseas and seemingly outside the grasp of the victim of fraud seeking to bring a claim in England.
The decision in ION Science is also noteworthy because it reached the conclusion that cryptocurrency could be treated as “property”, and that it could be considered to be located in the place of domicile of the registered owner. These conclusions are very similar to those already reached in other jurisdictions, but this is a topical example of an issue which is very likely to arise in fraud cases (where cryptocurrency is often used to conceal or transfer the proceeds of fraud) where different answers could be reached under different legal systems.